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Are you a 30 something saving for retirement? Keep this in mind

Retirement is not about kicking back and sipping fruit cocktails on a beach. It’s more about having the freedom to do what you want, in terms of work and lifestyle. This means not just having enough, but much more.

We are a generation of Indians who are truly going to have to pay for our own retirement. Most of us employed in private firms won’t have the benefit of pensions in our later years. We change jobs more frequently and some of us also take sabbaticals far more than earlier generations. Many of us also want to retire a lot earlier than our parents did.

Our relatively higher incomes, access to more financial and investment tools, and more information, are what we have to rely on to ensure a healthy and independent retirement.

What does this mean for our retirement?

Retirement for many millennials is not about kicking back and sipping fruit cocktails on a beach. It’s more about having the freedom to do what they want, in terms of work and lifestyle. This means not just having enough, but much more than that.

The biggest challenge we face is a higher actual cost of living which rises each year. Quite a few of our big spends, such as rent or home loan EMIs and commuting, are fixed and there isn’t much we can do about it. Combine that with our lifestyle costs, such as what we spend on weekends, and you are looking at expenses that are big percentages of our earnings.

Your retirement fund is not static, it needs to grow to survive

Inflation or increase in prices impacts your retirement fund the most and continuously reduces the value of your savings, if they are not growing at a rate that beats that of inflation. 

The thumb rule that works for deciding when you are ready to retire is when you have savings which equal 25 times your current annual expenses and when your home is paid for. 25x is the number that is big enough to allow you to invest a portion of this in investment instruments, such as equity, that beat inflation.

For most millennials this may sound like an “insane” sum of money. For example, a family spending Rs 70,000 per month would need to have Rs 2.1 Cr in savings as well as own their home to consider themselves ready for retirement.

Rather than see it as a single huge goal, see it as a sum of mile marker-goals that are fractions of the original goal. In the example stated above, Rs 2.1 Cr is huge but Rs 21 lakhs or about 10% of the amount is a much more achievable goal that you can see yourself achieving in a reasonable amount of time.

But how do we as millennials with our market dependent jobs and higher cost of living save and invest for such big sums?

Handling huge goals

Rather than see it as a single huge goal, see it as a sum of mile marker-goals that are fractions of the original goal. In the example stated above, Rs 2.1 Cr is huge but Rs 21 lakhs or about 10% of the amount is a much more achievable goal that you can see yourself achieving in a reasonable amount of time.

You might take a long time to achieve the first 10% but the subsequent fractions tend to be much faster and easier as your income goes up. Your investments also tend to grow more and faster thanks to the impact of compounding.

Breaking your big retirement goal into fractions is the first step to convert a seemingly unachievable goal into an achievable one. Aim to save and invest to reach 10%-20% of your goal amount at a time. This will also allow you to track and course correct depending on how your investments perform.

Aim not for retirement but for true freedom 

Retirement for millennials like us is largely about leading our lives the way we want to and not depend on a salary. Reaching the seemingly big goal also requires a practical approach that helps you get there comfortably and according to a pace that you can realistically account for. Just get started, and start achieving, even if it is 1% of your goal. Do that and see how it feels. You will realise it is worth it.

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